As said in previous post : cap' is short for "capable" which is a verb that doesn't just mean "to have the ability" but also has a daring quality to it. "Cap' ou pas cap'?" is sort of an expression a child will use to dare someone to do something risky in some way (cap' can also be used in other sentences). He knew what she meant because SHE didn't shorten it,and it's just common knowledge for people who speak the language...Does it answer your question?
(Jeu(x) just means "game(s) in general". "Jeux d'enfants"= "children's games" literally, in reference to this particular game they play, of daring each other to do extremely stupid/embarrassing/dangerous things).
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